Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 233

Asset class performance and lessons in 2017

Better than as good as it gets

2017 goes down in history as the 6th consecutive year of positive real total returns from all major asset classes for Australian investors – Australian shares, global shares, Australian and global bonds, listed and unlisted commercial property, housing and bank deposits. Six straight years when everything went up has never happened before in history.

Click chart to enlarge

The next longest period was four positive years in 1925-28 during the great post-war housing and government spending boom. No prizes for what happened next: the 1929 crash, 1930s depression and defaults by NSW and Commonwealth governments.

Periods of negative real returns from the major asset classes together are relatively rare and short-lived. There were only four individual years where major asset classes posted negative returns together:

  • 1912 –War build-up in Europe, US dismantling the Money Trusts, Titanic sinking
  • 1941 – Hitler invading Russia, Pearl Harbour bombing, Japanese army storming down through Asia.
  • 1948 – Industrial unrest, communist agitators, Australian bank nationalisation crisis, Soviet blockade of Berlin
  • 1973 – Australian monetary tightening, severe credit squeeze, Britain entering ECM, USD devaluation, Yom Kippur oil crisis

What is the common thread that runs through all of these positive and negative return periods? Inflation.

Each of the periods of across-the-board negative real returns had high inflation. Conversely, each of the periods of across-the-board positive real returns had low inflation, including the current six-year rally.

Will markets remain positive for another year to make it seven years in a row? All types of assets everywhere are expensive, but shares, property and bonds tend to do well when inflation and interest rates are low. The good news is that inflation and interest rates are still very low in Australia and around the world and are likely to remain that way for some time yet.

Portfolios and lessons

With each of the main asset classes posting positive returns in 2017 it was difficult to lose money.

Click chart to enlarge

The active positions that paid off for investors in 2017 include:

  • In Australian shares – bias toward small/medium versus large companies paid off as the big banks dragged on the market
  • In global shares – over-weighting ‘emerging markets’ shares paid off as Chinese tech stocks in particular were very strong
  • In global shares – bias toward hedged versus unhedged as the AUD rose
  • Within fixed rate bonds – bias toward corporate versus government bonds paid off as credit spreads contracted but no benefits from running floating versus fixed rate bonds.

As far as regrets go, it is easy to look back with the benefit of hindsight and say (for example), “We should have had more global shares”. However, it was hard to argue for an overweighting to global shares when they were so expensive at the start of the year and with the Brexit vote and Trump election so fresh in the minds of our investors.

 

Ashley Owen is Chief Investment Officer at advisory firm Stanford Brown and The Lunar Group. He is also a Director of Third Link Investment Managers, a fund that supports Australian charities. This article is general information that does not consider the circumstances of any individual.

 


 

Leave a Comment:

RELATED ARTICLES

Only 2.4% of companies deliver all net shareholder wealth

Spotting signs of trouble in a retirement portfolio

Where do Australian share returns come from?

banner

Most viewed in recent weeks

Which generation had it toughest?

Each generation believes its economic challenges were uniquely tough - but what does the data say? A closer look reveals a more nuanced, complex story behind the generational hardship debate. 

Maybe it’s time to consider taxing the family home

Australia could unlock smarter investment and greater equity by reforming housing tax concessions. Rethinking exemptions on the family home could benefit most Australians, especially renters and owners of modest homes.

100 Aussies: seven charts on who earns, pays, and owns

The Labor government is talking up tax reform to lift Australia’s ailing economic growth. Before any changes are made, it’s important to know who pays tax, who owns assets, and how much people have in their super for retirement.

The best way to get rich and retire early

This goes through the different options including shares, property and business ownership and declares a winner, as well as outlining the mindset needed to earn enough to never have to work again.

A perfect storm for housing affordability in Australia

Everyone has a theory as to why housing in Australia is so expensive. There are a lot of different factors at play, from skewed migration patterns to banking trends and housing's status as a national obsession.

Chinese steel - building a Sydney Harbour Bridge every 10 minutes

China's steel production, equivalent to building one Sydney Harbour Bridge every 10 minutes, has driven Australia's economic growth. With China's slowdown, what does this mean for Australia's economy and investments?

Latest Updates

Economy

Why we should follow Canada and cut migration

An explosion in low-skilled migration to Australia has depressed wages, killed productivity, and cut rental vacancy rates to near decades-lows. It’s time both sides of politics addressed the issue.

Investing

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Property

Australian house price speculators: What were you thinking?

Australian housing’s 50-year boom was driven by falling rates and rising borrowing power — not rent or yield. With those drivers exhausted, future returns must reconcile with economic fundamentals. Are we ready?

Shares

ASX reporting season: Room for optimism

Despite mixed ASX results, the market has shown surprising resilience. With rate cuts ahead and economic conditions improving, investors should look beyond short-term noise and position for a potential cyclical upswing.

Property

A Bunnings play without the hefty price tag

BWT Trust has moved to bring management in house. Meanwhile, many of the properties it leases to Bunnings have been repriced to materially higher rents. This has removed two of the key 'snags' holding back the stock.

Investment strategies

Replacing bank hybrids with something similar

With APRA phasing out bank hybrids from 2027, investors must reassess these complex instruments. A synthetic hybrid strategy may offer similar returns but with greater control and clearer understanding of risks.

Shares

Nvidia's CEO is selling. Here's why Aussie investors should care

The magnitude of founder Jensen Huang’s selldown may seem small, but the signal is hard to ignore. When the person with the clearest insight into the company’s future starts cashing out, it’s worth asking why.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.